[lbo-talk] How Significant Is Deflation?

[Dwayne Monroe]

Here is an excerpt from a report in today's Wall
Street Journal that has a ring, muted but still
detectable, of alarm.

....

Wholesale Prices Slide 1.9%,
The Biggest Drop on Record

A WALL STREET JOURNAL ONLINE NEWS ROUNDUP

WASHINGTON -- Wholesale prices registered the biggest
decline in at least 56 years in April, highlighting
the Federal Reserve's concern about the economy facing
a deflation risk for the first time since the Great
Depression.

The producer-price index dropped 1.9% last month,
after a 1.5% rise March, the Labor Department said
Thursday. It was the biggest decline since the
government began calculating the index in 1947.
That sharp dropoff reflected falling oil prices after
the war in Iraq got under control. But the core index,
which excludes volatile food and energy items, still
fell 0.9%. That was the biggest drop in a decade for
that gauge.

The overall decline in producer prices was more than
double the 0.8% economists had expected, according to
a survey by Dow Jones Newswires and CNBC. Economists
had pegged the core index's slide at 0.1%.

......

Not being an economist, I have only a layman's sense
that this is rather serious (along with the tone of
the report).

So I turn to those of you schooled in these matters;
how darkly portentious is this news?

D. Monroe

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